Deep Dive on Delisting of Tornado Cash: Potential Implications?

Overview

In March 2025, the Treasury Department’s Office of Foreign Assets Control (OFAC) delisted the Tornado Cash smart contracts from its Specially Designated Nationals (SDN) list. The announcement came after the Fifth Circuit Court of Appeals ruling in Van Loon v. Department of Treasury that Tornado Cash smart contracts are not property or interests in property under the International Economic Emergency Protections Act (IEEPA) and that OFAC had overstepped its regulatory authority in issuing the sanctions in the first place. In its ruling, the Fifth Circuit remanded the case back to the District Court with instructions “to grant Van Loon’s partial motion for summary judgment based on the Administrative Procedure Act.” This means the District Court is tasked with producing a final judgment in the case based upon the Fifth Circuit’s instructions.

The Treasury subsequently delisted Tornado Cash smart contracts from its SDN list prior to the District Court’s final judgment, saying OFAC “exercised our discretion to remove the economic sanctions” rather than specifically saying it was complying with the Fifth Circuit’s order. And as DEF previously outlined, the Treasury was strategic in its delisting of Tornado Cash.

First, days before the delisting, the Treasury responded to Van Loon’s motion for final judgment in the District Court, seeking to narrow the court order to only “immutable smart contracts” and place the issue back into the Treasury’s hands for further proceedings. Second, the Treasury then delisted the Tornado Cash smart contracts but kept Tornado Cash developer Roman Semenov sanctioned. Third, after delisting Tornado Cash, the Treasury claimed it had taken all the necessary actions to delist Tornado Cash, meaning that it was no longer necessary for the District Court to make a final judgment.

The delisting, of course, was a win for the DeFi industry. However, given the various actions taken by the Treasury and the way the Treasury couched its decisions, there are implications that warrant further considerations.

Background: Listing and Delisting Tornado Cash

In August 2022, OFAC designated Tornado Cash—as a perceived entity and its smart contracts as perceived property—to the SDN list under the Cyber-Related Sanctions Program pursuant to Executive Order (EO) 13694 titled, “Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities.” Specifically, Tornado Cash was designated 

“for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a cyber-enabled activity originating from, or directed by persons located, in whole or in substantial part, outside the United States that is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that has the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain.”

Then in November 2022, Tornado Cash was redesignated under the North Korea Sanctions Program pursuant to EO 13722 titled, “Blocking Property of the Government of North Korea and the Workers’ Party of Korea, and Prohibiting Certain Transactions With Respect to North Korea.” Specifically, Tornado Cash was designated 

“for engaging in transportation and procurement activities on behalf of the Democratic People’s Republic of Korea (DPRK)” and “for its role in enabling malicious cyber activities, which ultimately support the DPRK’s [weapons of mass destruction] program.” 

In 2023, Roman Semenov, one of the developers of Tornado Cash, was designated under Cyber-Related sanctions “for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any activity described in subsections (a)(ii) or (a)(iii)(A) of E.O. 13694, as amended, or any person whose property and interests in property are blocked pursuant to E.O. 13694, as amended.” And under North Korea sanctions “for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, the Government of North Korea, a person whose property and interests in property are blocked pursuant to E.O. 13722.”

Finally in 2024, pursuant to the Fifth Circuit’s ruling, the Treasury delisted Tornado Cash smart contracts from the SDN list under both Cyber-Related and North Korea sanctions. As for Semenov, OFAC removed him from Cyber-Related sanctions but maintained his designation under North Korea sanctions.

The Treasury’s Response

Prior to delisting the Tornado Cash smart contracts, on March 18, 2025, the Treasury responded to the Plaintiff’s motion for entry of judgment in Van Loon. In its response, the Treasury accepted the court’s ruling only on “immutable smart contracts” and “do[es] not oppose entry of a narrow judgment as to those immutable smart contracts while the Department of Treasury prepares to delist Tornado Cash.” However, the Treasury attempted to narrow the Fifth Circuit’s holding to only reach the question of immutable smart contracts, arguing that the Fifth Circuit did not answer the question as to whether Tornado Cash is an entity nor if “mutable smart contracts” are property.

The Treasury then asserted that the appropriate remedy is not injunction or declaratory relief but for the District Court to instead remand the matter back to the Treasury. In other words, the Treasury asked the court to not issue a broadly applicable order so that the Treasury itself could consider what next steps it would take, including removing the designations. The Treasury argued that a full vacatur of the District Court’s initial opinion, which was in the Treasury’s favor, would be the wrong remedy for two reasons: 1) according to the Treasury, the Fifth Circuit didn’t find any broad flaw in OFAC’s designation of Tornado—that it only found that the “immutable smart contracts” are not property: “That narrow decision does not reach the merits of the designation of Tornado Cash itself.”;  and 2) vacating the designation in its entirety would have negative consequences on national security and law enforcement.

Then, after delisting Tornado Cash smart contracts, the Treasury argued that, under its own discretion, it had fulfilled its duty and informed the District Court that because Tornado Cash had been removed from the SDN list, the case was now moot—i.e., there was no longer a “live” dispute—and federal courts are only allowed to rule on actual, ongoing disputes. The Treasury then requested that the District Court confirm that the case is indeed moot and that no final judgment is required.

Implications

There is a lot to take away from the various events that occurred in relation to the sanctions on Tornado Cash and Roman Semenov. The most important: the Treasury has indicated that it does not intend to surrender so easily.

This is illustrated in its response to the motion for final judgment, where the Treasury explicitly challenged the Fifth Circuit’s ruling regarding whether an “entity” exists as related to a DeFi protocol and asserted that “mutable” smart contracts remain susceptible to sanctions. But given its opposition to a full vacatur, there’s reason to suggest that the Treasury fears rolling back the entire District Court’s ruling and setting a precedent that would limit its perceived sanctions authority. 

Furthermore, the Treasury's choice of wording in its press release related to removing sanctions, specifically that it was doing so under its own “discretion” rather than to comply with a court order, suggests that it may at some point exercise its “discretion” to re-designate in some capacity.  Bluntly, the Treasury never acknowledged that a mistake had ever been made or that it should do something differently going forward. The Treasury’s response to motion for final judgment further delineated that it believes it maintains the authority to sanction what it believes to be entities of DeFi protocols, as well as “mutable” smart contracts. 

The Treasury has also not been clear about how it determines whether to designate under either the Cyber or North Korea sanctions programs. Cyber-Related sanctions are focused strictly on cyber-related activities, without targeting any one specific area, that are a significant threat to the “national security, foreign policy, or economic health or financial stability” of the United States. These are very broad sanctions that could easily encompass many activities but are difficult to solidify as having been actually done. Meanwhile, North Korea sanctions are harder to initially impose because OFAC would have to show attribution—i.e., liability for an action—but are easily solidified once there is any indication that a person was “supporting” North Korea in any fashion. This is because the North Korea sanctions regulations outline a significantly long and detailed list of activities that warrant sanctions designation, addressing almost every possible way to interact with North Korea.

The continuation of designations against a Tornado Cash developer also raises questions about how the Treasury will view software developers in the future. In the case of Roman Semenov, OFAC maintains its position that he “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, the Government of North Korea” by developing a decentralized software protocol that North Korea then used. This means OFAC more generally maintains that developers may be held liable for developing a software tool that could be used by North Korea—or any sanctioned third-party for that matter. And of course, this connects to criminal liability - the Tornado Cash sanctions were the basis of the Department of Justice’s indictment of Roman Storm and Roman Semenov, in which they are both accused of violating North Korea sanctions. So while there’s reason to celebrate the delisting of Tornado Cash smart contracts, the Treasury has made its stance clear: developing a permissionless DeFi protocol may still subject you to sanctions should it be used by a sanctioned entity.

Additionally, because Semenov is sanctioned for indirectly supporting North Korea in any way—there is no allegation in the Treasury’s statements or DOJ’s indictment that Semenov ever intentionally or even knowingly directly engaged with a sanctioned entity—there is reason to believe that others could be sanctioned for indirectly supporting North Korea as well. For example, if a user deposits a significant amount of crypto into a Tornado Cash pool, could they also be sanctioned for indirectly enabling North Korea’s money laundering using that same pool? Would listing TORN tokens on an exchange also indirectly supporting North Korea’s money laundering? Are either of these activities deemed as providing financial support if North Korea decides to use Tornado Cash again? Given the ambiguity of OFAC’s North Korea sanctions, these remain open questions, but ones that demand careful consideration.

Ultimately, while the delisting of Tornado Cash is good news and a big step in the right direction, it remains to be seen whether this is a permanent fix or a short-term band-aid. At the moment, the District Court is tasked with deciding its final judgment, and the ruling may determine whether OFAC will have the authority to relist other smart contracts within Tornado Cash or sanction the perceived entity of the protocol—and said authority will not be exclusive to Tornado Cash but to DeFi more broadly. 

This post was written by Lizandro Pieper, Director of Research, DeFi Education Fund